Five reasons Netflix may become the bargain bin of streaming services

Netflix is the most popular “Internet subscription service for enjoying movies and TV shows” in the world. Historically, Netflix has been a forward-thinking company. It was first to the DVD-by-mail business 12 years ago, stealing a good chunk of Blockbuster Video’s customers. A few years ago it took that vision to a new level by launching an instant streaming service as its competitors laughed at the idea. It secured thousands of movies and TV shows and made its service available on almost every movie player, smartphone, set-top box, and video game console available. Since 2009, its subscribers have doubled from 10 million to more than 20 million today, and growing fast.

For the last decade, Netflix has been one of the savviest companies around, but does it have a plan for the next 10 years? Netflix is facing an onslaught of problems, any one of which could ruin the streaming company if it doesn’t have a counter-strategy. Does Netflix have a plan to float above, and remain the go-to service for all of your movie and TV needs, or will it drown in the sea of streaming content slowly rising around it? Here are five of the biggest challenges facing the king of streaming today.

Old, dated streaming content

People are flocking toward Netflix’s Instant Streaming service. Indeed, even Netflix calls itself an “Internet subscription service” now. Currently, it offers nearly 12,000 movies and TV show seasons, which is more than double the number of titles its newest competitor, Amazon, is offering. However, a good portion of this content is old, widely available elsewhere, or crappy (not well-recieved by critics or the market) — sometimes all three. Where it relates to content quality, I am speaking broadly, but the fact remains that Netflix does not get a majority of new DVD releases on its streaming service, nor can it stream the vast majority of archived movie and television content readily available on DVD.

New content is being added. Yesterday, Netflix signed a deal with CBS to add a number of older TV series including Frasier, Family Ties, Cheers, The Twilight Zone, The Andy Griffith Show, Medium (recently cancelled), Flashpoint, and Twin Peaks. Unfortunately, this deal doesn’t appear to include old or new seasons of current CBS hit shows like How I Met Your Mother, The Big Bang Theory, The Amazing Race, The Late Show, or any of the 20 CSI shows currently airing. The streaming company inked similar deals with Disney-ABC and NBC Universal. Few of these deals include new or current-season programming.

Save its major deal with Epix to stream select new DVD releases from Paramount, Lionsgate, and MGM, movie deals have largely been for archived content as well. Most major distributors seem willing to offer some major films on Netflix, but their selections seem random, at best. Hollywood has been hesitant to offer much of its premium content before it knows exactly how much it is worth. Netflix’s problem: Fresh content may be cost more than the streaming company can afford under its current business model.

Starz may be the first major content loss for Netflix. In Oct. 2008 Netflix signed a deal to stream Starz movies. The deal added about 2,500 titles to Netflix’s library, including the majority of its best offerings. Recent Starz movies added to Netflix include The Sandlot, The Karate Kid, The Fast and the Furious, Julie & Julia, and Pixar’s Up. However, the Netflix-Starz deal ends sometime in 2011 and Starz is going to want a lot more money for its content this go-round. Will Netflix be able to afford the possible billion dollar price tag (the price it paid for Epix content over five years)? If so, how many of these content deals can it truly justify? It will bankrupt the company to buy streaming rights to every title it currently offers on DVD.